How the Pending Government Shutdown Will Affect Housing
Friday, April 8, 2011 — Housing and Urban Development Secretary Shaun Donovan told Senate lawmakers that he is “very concerned” about the consequences of a government shutdown on the housing market. Donovan warned lawmakers that lenders would have to stop making loans that are backed by the Federal Housing Administration, a government agency that insures home mortgages and is a popular choice among first-time home buyers.
“This is the worst time that we could introduce that uncertainty into this fragile housing market,” Donovan told a Senate subcommittee.
Congressional leaders have until Friday night to agree to a budget or face a government shutdown. The last government shutdown occurred in 1995 and lasted 21 days.
If a shutdown occurs, the FHA would be unable to insure any new loans. While banks will still be able to make FHA loans, experts say that some banks may hold onto these loans until the government re-opens. Experts say that large lenders likely can handle the added risk, but other smaller lenders may be forced to cancel pending loans.
“I am very concerned that a significant number of lenders would not choose to close on those loans,” Donovan said at the hearing.
The FHA is a popular choice among first-time home buyers since its minimum down payment requirements are 3.5 percent.
Meanwhile, many loans backed by Fannie Mae and Freddie Mac would not be affected by a government shutdown.
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